The organisation said the best actor winner’s actions were “shocking” and “traumatic” to witness live on television as it apologised to Rock, praising his “resilience in that moment”.
Smith took to the stage on Sunday and slapped the comedian across the face, following a joke about his wife Jada Pinkett Smith and her hair loss.
He later returned to accept the award for best actor for his performance in King Richard, and gave an emotional speech about the importance of protecting family.
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“Things unfolded in a way we could not have anticipated,” the Academy said in a statement.
“While we would like to clarify that Mr Smith was asked to leave the ceremony and refused, we also recognise we could have handled the situation differently.”
“Mr Smith’s actions at the 94th Oscars were a deeply shocking, traumatic event to witness in-person and on television,” the academy said.
“Mr Rock, we apologise to you for what you experienced on our stage and thank you for your resilience in that moment.
“We also apologise to our nominees, guests and viewers for what transpired during what should have been a celebratory event.”
A formal review into the incident has been launched to discuss what disciplinary measures will be taken, and Smith will reportedly be given the chance to provide a written defence.
The Academy said disciplinary action for Smith could include suspension, expulsion or other sanctions.
The actor apologised to The Academy and his fellow nominees in a tearful acceptance speech following his win, and later to Rock on social media.
In a statement posted to Instagram he admitted he had reacted “emotionally” to the joke, but “violence in all its forms is poisonous and destructive”.
Pinkett Smith also called for a “season of healing” following the incident, but Rock has yet to respond publicly.
Chris Rock says he is “still processing” his altercation with Will Smith at the Oscars but will talk about it “at some point”.
The comedian referenced the incident at a stand-up show and promised that when he did comment officially it would be “serious and funny”.
Smith’s behaviour has been heavily criticised by his Hollywood contemporaries, including Oscars’ so-host Wanda Sykes.
Speaking on the Ellen DeGeneres show, the actress and comedian said she was “still traumatised” and felt disappointed by the way the show had handled the “sickening” incident.
She also praised Rock’s response after the altercation, revealing he had approached her to apologise about the incident because he knew it would overshadow her plaudits for presenting alongside Amy Schumer and Regina Hall.
“I just felt so awful for my friend Chris. It was sickening, absolutely sickening. I physically felt ill and I’m still a little traumatised by it,” she said.
“And for them to let him stay in that room and enjoy the rest of the show and accept his award, I was like, ‘How gross is this? This is just the wrong message’.”
“You assault somebody, you get escorted out the building and that’s it. But for them to let him continue, I thought was gross.”